How to Stay Out of the ERP Trap
A fully integrated ERP software system can mean the difference between profit and loss in the toolroom.
Chances are that you've heard the buzz around ERP, the software that integrates scheduling, production, sales, accounting and other manufacturing and front office tasks into one computer-based system. It sounds good on paper and, indeed, a properly implemented ERP system can deliver amazing returns in production efficiency, reduced labor costs and improved customer service, no matter the size of the company or toolroom. Maybe yours is one of the estimated 65 percent of tool shops that have implemented ERP.
ERP as a concept is simply too compelling to ignore. It makes sense to replace a paper calendar and multiple, outdated accounting and spreadsheet software programs with an integrated system that stores and sorts the information flowing in from all areas of your toolroom and beyond. In larger tool shops, graphic-scheduling capabilities, links to the general ledger and sales order management alone justify the investment. In smaller shops, or those housed as part of a larger manufacturing organization, the ability to track progress against promise dates provides the incentive. A solid integrated ERP system can deliver results. That's the good news. The bad news is that the track record of ERP within the moldmaking industry has been less than stellar. Overall failure rates of ERP for generic manufacturing range from 10 percent to 25 percent. Estimates within the plastics and moldmaking industries put the failure rate at close to 30 percent. Not exactly the kind of odds you'd like to bet your business on, is it?
The other bad news is that there is such a dizzying array of choices from a dizzying array of vendors that it is often hard to tell what exactly the software does or how it does it. Add to that the unique demands that come from running a tool shop and, well, it's easy to see why so many ERP systems fail. Now before you throw up your hands and dismiss ERP as a crapshoot, let's take a look at your reasons for needing an ERP system and some of the things you can do to increase your ability to reap the benefits that ERP offers. Armed with the right information, you can find the right ERP system for your tool shop and avoid the ERP trap.
Let's start at the beginning. The term ERP stands for "enterprise resource planning," a confusing way to express a very simple concept: Managing each area of your business efficiently. At its inception in the 90s, ERP meant the integration of manufacturing resource planning, or MRP, and some accounting and human resource management functions. At its heart is the ability to schedule manufacturing operations, create work orders, track labor and materials, and tie manufacturing to other areas of the business, such as sales and distribution, accounting, production monitoring and reporting. Its function is to be the heartbeat of the manufacturing operation.
Since its inception, ERP has expanded to encompass many more functionalities. Indeed, in addition to the core manufacturing and front office functions, ERP has expanded to include elements of customer relationship management (CRM), warehouse management systems (WMS), electronic data interchange (EDI) and Internet information exchange, and other functions that expand beyond the four walls of the enterprise. The term "ERP II" is now used to identify systems that integrate these new features into the ERP environment.
Some vendors will offer these new functionalities as integrated features, while others require interfaces to third-party software products, known as "best of breed" solutions. Most experienced moldmakers prefer the integrated route as it is generally less costly and time consuming to add on modules from their ERP vendor than it is to attempt to interface their ERP system with other, often disparate, third-party software systems.
Confused? If so, you're not alone. Just remember what it is you need your ERP system to do and look to those vendors who can deliver it. Forget the acronym alphabet soup and focus on your own expectations for the software.
So what does all this mean for the tool shop? And what should moldmakers look for in an ERP system and the vendor that provides it? After all, even ERP systems that claim to be "manufacturing specific" will have features, such as extensive inventory control, that are either inappropriate or unnecessary for the majority of toolrooms and mold shops.
But it doesn't take a degree in computer science to select the right ERP system. The following is the top ten things you can do to make sure your next ERP purchase is the right - and hopefully last - one for your tool shop.
1. Set Realistic Goals
A good ERP system will make you a more efficient manufacturer and pave the way to future growth. It will not do it overnight. Before you begin the search for a new ERP system, you should look at what it is that your business is missing or lacking with its current system, whether it be computer or paper-based, and use it as the starting point for your ERP search. A good ERP vendor will help you define and refine your goals and objectives, and be able to lay a blueprint for how the software will address those goals and objectives.
2. Choose Software Suited to Your Industry Or Manufacturing Type
Look for a software package suited to what you do. Does it have easy creation of new projects? Does it have graphics scheduling and allow you to easily convert sales orders into work orders? If you're in the plastics industry, does the ERP system have the capability to handle the unique demands of contract manufacturing? If your tool shop is part of a larger manufacturing organization, does the ERP system link to those other manufacturing types? There are many software packages that claim to be "manufacturing specific," but very few can handle the specific requirements of a mold shop without lots of costly customization. Make sure the software speaks your language.
3. Choose a Vendor That Knows Your Industry
Once a moldmaker invited a large, generic ERP vendor to come in for a sales demonstration. The presentation included three well-dressed salespeople, high-tech graphics, eye-catching charts and lots of formidable sounding technology jargon. There was just one problem with the demonstration: It was on how to package a perishable food product. What was supposed to be a sales demonstration turned into a tutorial, with the manufacturer giving the ERP salespeople an ad-hoc lesson on how to build a tool. The point is that you will save you and your company a lot of grief if you begin your selection with ERP vendors that have experience with discrete manufacturing environments such as moldmaking. Ask for references within your industry.
4. Choose an ERP That Natively Integrates The Features You Need
When you evaluate ERP packages, you should look at the core features that come integrated into the sticker price, as well as those that can be added-on as your company grows. Experience proves that you will reduce your implementation time and ultimately have a more productive system if you choose an ERP system that natively integrates the features you need rather than requiring you to bundle a lot of third-party software together. Many ERP horror stories begin and end with getting two software systems to talk to each other. The less time you spend interfacing your ERP with other software systems, the happier you'll be. If you need graphic scheduling, links to the G/L, capable to promise or outsource project planning, make sure that they're integrated as core features. This is especially important for small tool shops and those that are part of a larger manufacturing organization. Create a priority list of the functions you need and grade each vendor on their ability to meet those needs with their own native products.
5. Buy to What Your Needs Will Be in a Year And Beyond
It's understandable, especially in the slowed economy, for toolmakers to want to buy the lowest priced ERP system available. Unfortunately, the old adage that "you get what you pay for" is especially true when it comes to ERP systems. When you buy an ERP system, you are making an investment that will affect every area of your business from that point forward. Maybe one of the low-priced or off-the-shelf software products is ideal for your current situation, but does it have the feature set or "scalability" that will allow your business to grow in the long term? Does it provide the integration - between your sales orders, G/L and manufacturing for example - that you need to make your tool shop truly more efficient? Does the software come with the training and implementation support that is crucial to the success of the project? In the world of ERP, a little extra investment goes a long way, but only you can determine the feature set that your shop will need in the long run.
6. Select an ERP System That Is Intuitive And Easy to Use
So you've read the marketing materials and sat through a sales demonstration for an ERP software system that promises all the features you need. Then you take a hands-on tour of the software and realize that it is difficult to navigate, impossible to jump between different areas of the software and in no way related to how you manage your manufacturing operations. The result: Disaster. No matter how sophisticated or functional the software is, if it's hard to use or time-consuming to operate, it will likely offset many of the reasons you decided to install an ERP system in the first place. Ease of use should be a primary factor on your ERP evaluation checklist. Is there a navigation tool that allows you to jump from one area, i.e., sales orders, to another area, i.e., scheduling? Are the buttons and tool bars displayed logically in an order that doesn't require a degree in IT to understand? If you find it hard to use, chances are that other system users will find it hard to use as well.
7. Get a Guarantee
As Yogi Berra once said, "Nothing guarantees like a guarantee." Let's face it. Although you hope it never comes to it, a money-back guarantee is your ace in the hole if the ERP system does not deliver as promised. Some vendors will offer a 30-day or 60-day guarantee - barely enough to cover the installation timeframe. Demand at least a three-month guarantee; three months is generally a good gauging point for ERP implementation success. If you don't see progress on your goals and objectives for the project, don't be afraid to use the guarantee.
8. Have an Implementation Team in Place
Successful implementation is absolutely critical to the overall success of your ERP system. Thus, from my experience, nothing kills an ERP system faster than failed or prolonged implementation. To avoid the implementation trap, identify and secure buy-in from management and other staff who will be "power users" in the system early in the selection process. If you're the plant manager or other C-level officer, make sure that other management staff and those that will be more hands-on users of the system provide input on the features or functions they would like to see in the system. Concepts and features that might sound good to the plant manager or corporate executive might spell disaster or confusion for the controller or toolroom operator. Get the right people on board - early.
9. Invest in Training
Once the implementation period is over, you're ready to go live and reap the benefits of your ERP system. However, the system is only as good as the people that use it. The faster that your system users begin utilizing the full functionality of the software, the quicker you will see return on investment. In order for this to happen, you need to make sure that each system user understands how the software works as it pertains to his or her job function. As part of your ERP budget, you should set aside a percentage to invest in ongoing training for your employees. Many manufacturers successfully employ the "train the trainer" model, where select employees undergo extensive training in the software and are then responsible for training other staff back at the plant or toolroom. If time and travel costs are still too much to bear, consider Internet-based training - a great way to train new employees or brush up on a specific area of the software. Make sure your ERP vendor provides different, cost-effective training options to suit your specific needs.
10. Don't Be Afraid to Ask Questions
An ERP system will affect every area of your business - from the front office to the shop floor. Even if you're a small shop it will have a profound effect on how you do business. Thus it's crucial that you understand exactly what it is that you're buying. ERP is simple in theory, but often complex in practice, as evidenced by the alphabet soup of acronyms that describe some of its features and capabilities. Make sure you get the answers to the questions you have, and don't let smooth-talking salespeople try to dazzle you with technical jargon. Keep asking until you get the answer that you need. After all, you're the customer right?
ERP is a powerful tool, one that can either make or break a toolroom. The right ERP system will do wonders for the bottom line in terms of reduced labor costs, more efficient scheduling and use of material and resources, and improved customer service. The return on investment can be immediate. Implemented poorly, ERP can spell a world of headache and frustration. To stay out of the ERP trap, learn from the experience of others, don't be afraid to ask the right questions, and most importantly, know what you want before you start the process. The gold road is sure a long road, but armed with the right information, your company will be on the road to ERP success.
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